Sprinklr, Inc.

everyone to Sprinkler's third quarter fiscal year 2026 financial results call. Joining us today are Rory Reed, Sprinkler's president and CEO, and Anthony Coletta, Sprinkler's chief financial officer. We issued our earnings release a short time ago, filed the related form 8K with the SEC, and we've made them available on the investor relations section of our website, along with the supplementary investor presentation. Please note that on today's call, management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. You are directed to our press release and investor presentation for a reconciliation of such measures to GAAP. In addition, during today's call, we'll be making some forward-looking statements about the business and about the financial results of Sprinklr that involve many assumptions, risks, and uncertainties, including our guidance for the fourth fiscal quarter and full fiscal year of 2026, the impact of our corporate strategies, and changes to our leadership, benefits of our platform, and our market opportunity. Our actual results might differ materially from such forward-looking statements. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them. For more details on the risks associated with these forward-looking statements, please refer to our filings with the SEC also posted on our website. With that, let me now turn it over to Rory.

Thank you, Eric, and hello, everyone. It's nice to be with you today. Third quarter total revenue grew 9% year-over-year to $219.1 million, and subscription revenue grew 5% year-over-year to $190.3 million. We generated $33.5 million in non-GAAP operating income, which resulted in a 15% non-GAAP operating margin for the quarter. I want to thank our Global Sprinkler team, as well as our customers and partners, for trusting us to help solve some of their most pressing business challenges. I'm excited to welcome two new leaders to our executive team, Anthony Coletta as CFO and Karthik Suri, as the chief product and corporate strategy officers. Both bring deep experience in scaling operations, driving growth, and building world-class products at leading technology companies. We've been intentional about strengthening our leadership team, and with these additions, we're nearly complete. Anthony and Karthik join us as we sharpen execution and continue our work to drive Sprinklr into its next phase of durable growth. When I became CEO a year ago, we set a clear strategy to improve Sprinklr's position in a rapidly evolving customer experience market to leverage our AI-powered platform through an ambidextrous approach, re-energizing and growing our core while expanding and strengthening our disruptive services. The rise of first-party data is transforming this landscape. Brands and consumers now have unprecedented access to own data, tools, and channels, fueling a shift from transactional interactions to personalized omnichannel engagement powered by AI and analytics. First-party data enables granular segmentation and real-time personalization across every touchpoint, making hyper-personalization not optional, but essential. Customers expect their experiences that reflect their entire relationship with the brand, tailored to their unique needs. Delivering this requires moving beyond basic personalization toward an immersive engagement across discovery, commerce, support, and service. Sprinklr makes this possible. Our AI native platform turns first-party data into actionable insights, enabling brands to anticipate customer needs and delivering meaningful value across all customer interactions. Through our social insights, service, and customer feedback management suites, leading brands leveraging real-time behavior and sentiment to recommend content and products that drive engagement and loyalty. With Sprinklr, brands gain a unified voice and holistic customer view, which is unique and unmatched in the industry. These evolving dynamics require a different Sprinklr. Leveraging our robust technology platform, iconic customer brands, and strong balance sheet, we've used fiscal 26 as a transitional year as we transform the company. At the beginning of this year, we recognized the need for foundational change, and we've taken decisive action. Since then, we've made significant operational improvements. streamlining processes, modernizing system and enhancing cross-functional alignment. We've also strengthened our leadership team and welcome new talent across the organization, bringing expertise to drive durable growth. While these changes are the right ones and we believe will deliver long-term value, real transformation takes time. We're entering the second phase of our transformation, transition and execution, which will extend into next year. This phase is about embedding the actions from phase one into our operations and culture, creating the foundation for scale and efficiency. Key indicators and customer engagement trends are moving in the right direction, and we're seeing some early momentum. Importantly, we are in a stronger position today than at the start of the year. While more work remains, we are confident in our strategy and committed to driving sustainable growth and long-term shareholder value over the next couple of years. One of our most important initiatives is Project Bear Hug, focused on deepening engagement with our top 700 customers, representing more than 80% of our total revenue. In the first 10 months, we've established a steady cadence and held many meaningful engagements with key accounts. We also hosted our second annual CX Unifiers Conference in Nashville, bringing together hundreds of attendees, including leading customers for advisory sessions and an analyst summit. The event showcased our latest innovations and thought leadership in AI and customer experience. Early results from Project Bear Hug are telling. Stronger C-suite relationships, tighter alignment with customer priorities, and clear demonstration of Sprinkler's value. We expect these efforts to improve renewal rates into FY27. Sprinklr is the system of record for customer engagement across social, digital, customer feedback, and voice channels. Our AI native platform is purpose-built for customer experience with deep industry and application integrations to meet enterprise needs. As we shared in prior earnings call, we continue to invest strategically to help customers navigate rapid industry shifts and meet evolving expectations in real time. These investments strengthen our leadership position across both core and sprinkler service and will continue through FY27, reinforcing our commitment to innovation and customer success. Now I'd like to share a couple of customer stories. We recently signed an expansion deal with a leading Latin American bank that is scaling digital-first customer service for tens of millions of customers. The partnership began in early 2024 with Sprinklr service and insights in one country, and rapid success drove expansion. AI-powered automation delivered a 35% increase in case deflection, 50% faster handling times, and a 500% boost in agent productivity. CSAT scores rose significantly and the insight to action cycle dropped from days to minutes, enabling faster decisions on service and campaign adjustments. Building on these results, the bank doubled channel coverage in the next market, managing 4x more cases and unlocking millions of dollars in value through efficiency, risk mitigation, and retention. Today, Sprinklr's unified platform consolidates customer care and marketing intelligence across three regional markets, creating a single source of truth for CX and marketing teams. The latest expansion in AI Agent underscores the bank's confidence in Sprinklr's ability to secure scalable and efficient digital services as it expands across Latin America. Our second customer story highlights our commitment to improve delivery and execution in partnership with one of the world's premier streaming and entertainment companies. We've come a long way since the initial implementation. In 2024, we launched the first phase of their global contact center transformation in Asia using sprinkler service and knowledge management. We had some initial challenges, and the customer let us know. Ahead of the North America EMEA and LATAM rollouts in early 2025, we met regularly, face-to-face, to address these challenges and drive improvement. We made key personnel changes, tightened processes, and strengthened quality controls. With each phase, delivery improved. By September, the customer was fully live, 5,000 agents across 210 countries, supporting 40-plus languages, handling over 40 million contacts annually. The result, a new multi-year commitment. This turnaround reflects our values. We showed up and we made it right. We executed with excellence, and that's how we earned trust and drive growth. In closing, we made strong progress in our transformation to build a stronger, more customer-centric Sprinklr. Retention rates are beginning to show improvement and our pipeline remains strong. Clearly, more work remains, but we are executing with new discipline and prudence to enable future and sustainable growth. As brands face rising customer expectation, first-party data has become mission critical creating new opportunities for loyalty and monetization. Sprinklr's AI native platform is uniquely positioned to unify this data across all channels, delivering consistent, connected experience at scale. Our dual focus on transformation and execution is gaining momentum. 3Q marked another important step forward. And while some challenges remain, we are confident these initiatives will continue to improve our business. Now I'll turn the call over to Anthony for the financials. Anthony?

Thank you, Rory, and good morning. It is great to be with you today, and I look forward to a constructive dialogue with the financial community. I would like to start by thanking everybody at the company for delivering such a strong Q3. This quarter marks another step in the transformation focused on business continuity as we solidify our position. It's a step forward on a longer path, one that sets the tone for consistent performance. With the leadership team, we are very much aligned and focused on scaling this business with clarity and operational discipline. As we progress towards the end of fiscal year, we are laying out the groundwork for the next phase to shape a trajectory that compounds value over time. I'm excited to join Sprinklr at this pivotal moment. What stands out for me so far is the competitive edge and the quality of our customer base, including some of the world's most iconic brands. Big volumes about the differentiated value of our unified CXM platform. Consistent with Rory's comments, we have a clear strategic vision and we are committed to executing it with transparency. We are actively working through a transformation that we believe will position us for sustained growth coupled with quality of earnings. I want to thank the investors who have placed their trust in Sprinklr so far. You should expect a steady voice from us, openness about the state of play, and we'll be intentional in our approach. Now let me dive into the financial performance. In Q3, total revenue was $219.1 million at 9% year-over-year. Subscription revenue was $190.3 million at 5% year-over-year. While this was ahead of expectations, there has been downward pressure from renewals for more than two years now. In the third quarter, we continued to make tangible progress on previously challenged accounts. driving consumption and securing renewals from an eye-hungry agenda. Professional services revenue came in at $28.8 million as we are working on some large CCAS rollouts for our customers that we expect will translate into software subscription revenue in future quarters. Services revenue came in better than anticipated due to more hours logged to some of these large projects. Our subscription revenue-based net dollar expansion rates in the third quarter was 102%. This is flat sequentially, showing some encouraging stabilization. At the end of the third quarter, we had 145 customers contributing $1 million plus or more in subscription revenue over the past 12 months, which is a modest decrease of four customers from Q2. Given the level of downsells over the past year, some customers have seen their 12-month revenue dip below 1 million level for this metric. However, and I believe more importantly, I would like to note that the revenue contributed by the $1 million customers cohort was up 9% year-over-year, and the net dollar expansion for this cohort in Q3 was 113%. We don't intend to disclose these metrics quarterly going forward, but I wanted to give you a sense of some of the progress we're seeing in terms of cross-selling. We firmly believe that our bear hug focus will solidify our baseline and contribution from the top tier enterprise customer over time. Regarding gross margin for the third quarter on a non-GAAP basis, our subscription gross margin was 77%. And operational services gross margin was 5%, resulting in a total non-GAAP gross margin of 67%. As noted in previous calls, we are experiencing higher data and hosting costs in response to business opportunities, especially in sprinkler service and our expanded AI capabilities. Turning to profitability for the quarter. Non-GAAP operating income was $33.5 million, or 15% margin, which was non-GAAP net income of $0.12 per deleted share. We incurred $0.8 million in restructuring and non-recurring litigation costs that are deemed to be non-core to the operations of the business, and as such, these costs are not included in our non-GAAP figures. We generated $15.5 million in free cash flow in Q3 and $126 million year-to-date on a reported basis. Including restructuring payments made mostly in the first half of the year, free cash flow for the first nine months was nearly $140 million. Our balance sheet remains strong with $480.3 million in cash and marketable securities and no debt, providing optionality for future capital allocations. Calculated billings for the third quarter were $158.4 million, an increase of 7% year-over-year. As of October 31, 2025, total remaining performance obligations, or RPO, were $857.6 million, down 5% compared to the same period last year. In Q3 full year 2025, there were a couple of large deals that were put forward and reported in that quarter, leading to a higher baseline. Including these outliers, total RPO will be flat year-over-year. And current RPO and CRPO was $562.2 million, up 3% year-over-year. Now I'd like to shift to our financial outlook and guidance for the remainder of the year. OQ4, we expect total revenue to be in the range of $216.5 million to $217.5 million. representing 7% gross year-over-year at the midpoint. Within this, we expect subscription revenue to be in the range of $191 million to $192 million, representing 5% gross year-over-year at the midpoint. The Q4 guide implies $25.5 million in professional services revenue, which is growing by 25% year-over-year. This is a step down sequentially because of one-time positive impacts from large projects transformed into three. We expect professional services gross margin to be slightly negative in Q4 due to continued investment in services delivery and capabilities. We believe such investment is worthwhile as these implementations will yield dividends in terms of increased consumption and customer satisfaction in the future. With respect to billings, Q4 is traditionally the strongest quarter, given business seasonality and overall technology spending, so we estimate total billings of approximately $320 million for the quarter. We expect non-GAAP operating income to be in the range of $29 million to $30 million, presenting a non-GAAP net income per deleted share between $0.09 and $0.10, assuming $254 million deleted weighted average shares outstanding. This equates to an approximately 14% non-gap operating margin at the midpoint. As noted earlier in the year, we are experiencing a stronger tech in our AI products, leading to higher cloud costs. Secondly, as well as noted in these remarks, we are investing to position the company for revenue growth in the future through hiring AI and R&D talent. particularly in targeted regions, to best serve key customers as well as enabling additional go-to-market capabilities. These factors are reflected in the guide for Q4. For the full year FY26, we are raising our expectations for both subscription revenue and total revenue estimates. We now expect subscription revenue to be in the range of $754 million to $755 million, representing 5% growth year-over-year at the midpoint. We float through all the Q3 bits. We now expect total revenue to be in the range of $853 million to $854 million, representing 7% growth year-over-year at the midpoint. This is a $15.5 million increase from prior guidance, driven by an increase in our professional services revenue expectation to $99 million, and the corresponding flow-through and raise for subscription revenue. For the full year FY26, we are raising our non-GAAP operating income to be in the range of $137.5 million to $138.5 million, driving a 16% non-GAAP operating margin. This equates to non-GAAP net income per deleted share between $0.43 and $0.44, assuming 265 million deleted weighted average shares outstanding. Deriving the net income per share for modeling purposes, a total tax provision of approximately $42 million needs to be added to the non-GAAP profit before tax line. To get to non-GAAP profit before tax, start with the non-GAAP operating income ranges provided. and add an estimated $24 million in other income for the full year, with $4 million of that to be earned here in Q4. This other income line primarily consists of interest income. We estimate a tax provision of approximately $8.7 million in Q4. This equates to approximately a 26% effective tax rate on our non-GAAP profit before tax for both the quarter and the year. We are maintaining our full year free cash flow estimate of $125 million, excluding restructuring costs. This implies approximately negative $15 million in Q4, driven by collections on a smaller Q3 book of business and targeted investment this quarter. On a reported basis, we expect full year free cash flow of about $110 million, up over 80% year over year. Given the recent leadership changes and our diligence in the approach, we will provide a detailed financial outlook for FY27 on our Q4 earnings goal, which we expect to be scheduled for mid-March. In summary, Q3 came in better than anticipated across the board. We are encouraged by the tangible progress made so far and see signals of some green shoots. We are raising the full-year top-line and non-bottom-line guidance, reflecting our Q3 performance and business prospects. As we transition into Q4, we move with velocity and are laser-focused on turning our growth engine, sustaining innovation, and on staying the course towards the next leg of our journey. And with that, we will now open the line to take questions from the audience. Operator?